Ever decreasing water resources and climate change have driven the increasing use of groundwater causing land subsidence in many countries. Geodetic sensors such as InSAR, GPS and leveling can detect surface deformation but cannot measure subsurface deformation. A single‐well, single‐depth extensometer can be used to measure subsurface deformation, but it cannot delineate the depths of major compaction and provide insight about the deformation mechanism throughout a complex aquifer system, unless man extensometers at different depths are used. We present a multilayer compaction well (MLCW), installed in a borehole, that uses magnetic rings to detect stratum compaction at 25 depths as deep as 300 m below land surface. Our laboratory and field assessments indicate 1 mm precision and accuracy for one single‐depth magnetic reading. We tested the performance of MLCW by measuring aquifer‐system compaction over the proximal, middle, and distal fans of the Choushui River Alluvial Fan (CRAF) that has long experienced severe land subsidence. The MLCW measurements were used to create time‐depth diagrams of compaction, showing different compaction rates at different layers of aquifers and aquitards to identify the depths of major compactions. The elastic (reversible) and inelastic (irreversible) compactions from MLCW were used in stress‐strain analyses to estimate skeletal specific storages and the safe groundwater levels, below which groundwater extractions have caused irreversible compactions. The hydrogeological parameters derived from MLCW measurements can help governmental agencies to determine effective land‐use and water‐use policies, and ascertain the best strategy for utilizing artificial recharge to prevent land subsidence and achieve sustainable groundwater management.